Shannanigan, your post reminds me of a dog movie that I recently saw, My Dog Tulip. I highly recommend it – but a good portion of the film involves this doting owner trying to find a mate for his Alsatian (German Shepherd), and doing exactly what we would call backyard breeding these days. Except in his case, it's more like balcony breeding, as he doesn't even have a backyard in his 1950s London home.
The German Shepherd does eventually get pregnant and produces a litter of mutts. The narrator/real life writer J.R. Ackerley talks about the trouble finding good homes for the pups, and how he eventually ended up giving them to anyone who could take them. It sounds like he had every intention to do the "right" thing and follow up on the lives of the puppies he produced, but when he realized that many of them met sad fates or just became lost, it became too depressing for him to pursue further...
In a very gentle, non-judgmental, but sobering way, that film tells the same story you tell now. And while things changed in the fifty years since that story took place, backyard breeding still happens the world over. Maybe it always will? I don't know. But like you, I've come to some stark realizations in the years since we got our first dog from what was most likely a puppymiller posing as a backyard breeder. Despite my naivete at the outset, I don't think I love dogs any less.
I've heard it said elsewhere, and i think it's a good motto to consider. It doesn't matter so much where your current dog came from, it's where your next one comes from that counts… And now we know.